EIM21746 – Particular benefits: loans written off: loans made by close companies

Sections 419 and 421 ICTA 1988

A close company is chargeable to tax on any loans it makes to a director or an employee who is a participator (or an associate of a participator) under Section 419 ICTA 1988.

If a loan which is chargeable under Section 419 is released or written off either wholly or in part, the borrower's total income is normally treated under Section 421 ICTA 1988 as if it were increased by the amount released or written off, grossed up at the Savings and Investment Income ordinary rate of tax (see CTM61630).

The charge under Section 421 takes priority over Section 188 ITEPA2003 ( EIM26116). Do not treat any amount released or written off which has been treated as the borrower's income under Section 421 as also chargeable under Section 188(1) ITEPA 2003.